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«TABLE OF CONTENTS DEFINITION, TECHNICAL GLOSSARY AND ABBREVIATIONS FORWARD-LOOKING STATEMENTS RISK FACTORS SUMMARY SUMMARY OPERATING AND FINANCIAL ...»

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JAL has since purchased the said 135 million shares of the Company from ICICI Bank Limited in two tranches pursuant to the abovementioned Shareholders and Buyback Agreement between ICICI Bank and JAL. The purchase of first tranche of 25,000,000 shares of face value of Rs.10 each was done at a price of Rs.17.00 per share on June 30,

2004. The purchase of second tranche of 110,000,000 shares of face value of Rs.10 each was done at a price of Rs.17.75 per share on December 31, 2004. These buy-back prices were calculated as per the formula provided in the said Shareholders and Buyback Agreement. Thus, the provisions of Shareholders and Buy Back Agreement no longer remain in force & effect between the ICICI Bank and JAL since ICICI Bank ceases to own any shares in the Company.

SELECTED FINANCIAL DATA

The following financial data have been prepared in accordance with Indian GAAP, the Companies Act and the SEBI Guidelines and restated as described in the report of our statutory auditor M/s. R. Nagpal Associates dated January 23, 2005 in the section titled “Financial Statements” on page 150 of this Draft Red Herring Prospectus. This financial data should be read in conjunction with our financial statements (as restated) for each of financial year 2002, 2003 and 2004 and six months ended September 30, 2004 including the notes thereto and the reports thereon, which appear on page 155 of Draft Red Herring Prospectus, and “Management’s Discussion And Analysis of Financial Condition and Results of Operations”. For the purpose of this section, any reference to “we”, “us” or “our” refers to Jaiprakash Hydro-Power Limited.

Our financial year ends on March 31 of each year. We commenced our commercial operation on May 24, 2003. Thus, our financial performance for year 2004 pertains to the period May 24, 2003 to March 31, 2004. For the year 2005, our financial performance is for the six-month period between April 1, 2004 and September 30, 2004. There are no operating figures for the year ended March 31, 2003 and March 31, 2002.

–  –  –

MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITIONS

The financial statements have been prepared in accordance with the Indian GAAP, the Companies Act, and the SEBI Guidelines and restated as described in the report of our statutory auditor M/s. R. Nagpal Associates dated January 23, 2005 in the section titled “Financial Statements” on page 150 of this Draft Red Herring Prospectus. Indian GAAP differs in certain significant respects from US GAAP. For more information on differences between Indian GAAP and US GAAP, please refer to the section titled “Summary of Significant differences between Indian GAAP and US GAAP” on page 171 of this Draft Red Herring Prospectus.

Our financial year ends on March 31 of each year. We commenced our commercial operation on May 24, 2003. Thus, our financial performance for year 2004 pertains to the period May 24, 2003 to March 31, 2004. For the year 2005, our financial performance is for the six month period between April 1, 2004 and September 31, 2004. There are no operating figures for the year ending March 31, 2003 and March 31, 2002. Our historical financial performance may not be considered as indicative of future financial performance.

Business Overview

Our main business objective is to set up power projects. We have set up run-of-the river hydro electric Power Plant with a capacity of 300 MW designed to produce electrical energy of 1,213.18 MU annually based on 90% Dependable Year. Our Power Plant is located on river Baspa, a tributary of river Satluj in District Kinnaur, Himachal Pradesh. A PPA has been executed (valid for 40 years extendable by further 20 years) wherein the entire power produced shall be sold to HPSEB on a tariff formula as stipulated in the PPA. Our Power Project has been implemented on a BOO basis at a cost of Rs 16,247.20 million excluding liabilities on account of payment to SJVNL for Interconnection Facilities and implementation of CAT Plan together amounting to Rs. 426.16 million. The Lenders had appraised the project cost at Rs. 16,120 million. However, HPSEB and GoHP have approved the completion cost at Rs. 15,500 million for the purposes of computation of tariff. The first unit of our Power Plant was commissioned on May 24, 2003, second unit on May 29, 2003 and the third unit on June 8, 2003. The Plant Availability during FY2004 was 96.80% whereas for the period ended September 30, 2004 it was 99.54%.

In addition to the Design Primary Energy, generation of upto 155 MU on an average annual basis has been envisaged in the PPA as Secondary Energy. During the period May 24, 2003 to March 31, 2004 approximately 50 MU of Secondary Energy had been generated. During the six-month period ended September 30, 2004 the Secondary Energy was approximately 73 MU.

As compared to the Design Energy, the actual generation was higher in the months from May 2003 to September 2003 and lower in the months from October 2003 to March 2004 on account of water availability in the river Baspa. For the six-month period ended September 30, 2004 the aggregate actual generation has exceeded the Design Energy.

Factors Affecting Our Operations

Our future operations could potentially be affected by the following factors:





• Water availability The generation of our Power Plant is primarily dependent upon the availability of water in river Baspa which is essentially a snow fed river. The Power Plant has been designed based on the data of water availability study for the period from 1977-78 to 1992-93. The Design Energy of the Power Plant, under the PPA, has been calculated based on 90% Dependable Year and 95% availability of Installed Capacity. However, inadequate precipitation in the catchment area due to climatic conditions may reduce the water availability in the river Baspa, which may affect the power generation. The PPA stipulates that, for the first seven years from COD, in a situation where the Power Plant was available but generation could not take place due to non-availability of water, payment on account of Deemed Generation (up to Design Energy) shall be made by HPSEB to us.

The normative availability of the Power Plant has been envisaged to be 90% in the PPA. Full Capacity Charges (fixed charges) are payable to us by HPSEB only in case the Plant Availability is minimum 90%. Pro-rata deduction shall be made from our claim in case Plant Availability is less than 90%. We shall be entitled for additional incentives at the rate of 0.35% of the equity component of the approved project cost for each percent of Plant Availability beyond 90% up to maximum of 2%. In addition, we are entitled to receive incentives for Secondary Energy with a cap of 10% p.a.

return on equity base. In case the availability of Installed Capacity is less than 95%, the generation may fall below the Design Energy, and adversely impact our revenue

• Fixation of tariff by HPERC and payment mechanism The PPA was executed between HPSEB and us in June 1997 keeping in view the applicable GOI guidelines for determination of tariff, under the concept of two part tariff linked to the capital cost of the Power Project. In accordance with the PPA, we shall be paid Capacity Charges (interest on loans, depreciation and leasing charges) on monthly basis, to be arrived at by dividing total annual Capacity Charges by 12. The Primary Energy Charges are determined on monthly basis at per unit rate arrived at by dividing total annual Primary Energy Charges by the annual Design Energy, for the actual units generated. Besides, the incentives for Secondary Energy, Plant Availability, the tax on income and the foreign exchange fluctuation is payable to us by HPSEB.

Currently, HPSEB is making payments to us based on actual realizations from sale of power. However, the proceeds are not adequate to pay us our full entitlement as per provisions of the PPA. The differential amount is payable by HPSEB to us along with interest of 3% p.a. over the SBI short term lending rate, in terms of the PPA. In FY 2004, such differential amount was Rs 997.96 million and as on September 30, 2004 this amounted to Rs. 1270.04 millions.

It is pertinent to note that such differential amounts may vary consequent to tariff determination by HPERC.

In accordance with the terms of PPA the payment shall be made by HPSEB through the letter of credit, which has been established by HPSEB on February 27, 2004. Further, HPSEB has executed the Escrow Account Agreement pursuant to which the revenues from select revenue circles are being deposited by HPSEB in the escrow account. The payment of HPSEB to us is further guaranteed by GoHP

• Evacuation of power We are required to deliver power generated at the Interconnection Point. The evacuation of power beyond Interconnection Point is the responsibility of HPSEB. In the event of HPSEB not being able to evacuate power beyond the Interconnection Point or HPSEB giving backing down instructions resulting in spillage of water, HPSEB would be required to make payments to us under Deemed Generation limited to Design Energy as per the provisions of the PPA

• Regulatory and Significant Economic changes Generation of power in the private sector was provided impetus with the policy announcement by Govt. of India in early 90s followed by tariff determination guidelines issued in 1995, which were revised in 1998, assuring a fixed return on equity to the independent power producers. The Electricity Act, 2003 opens new vistas for the companies in trade allowing open access in power transmission and distribution areas. The promulgation of Energy Conservation Act, 2001 was done to ensure efficient use of energy by minimising losses through transmission and distribution, which may result into better realization to the generators.

GOI initiatives for facilitating private investment in power sector like no ceiling on foreign equity participation, promotion of direct foreign investment in transmission through joint venture and independent power transmission company are likely to create a favourable climate.

Significant Accounting Policies

Our financial statements are prepared under the historical cost conventions in accordance with generally accepted accounting principals in India, and the relevant provisions of the Companies Act, 1956. The preparation of financial statements in accordance with Indian GAAP and the provisions of the Companies Act require our management to make judgment, estimates and assumptions regarding uncertainties that affect the reported amounts of our assets and liabilities, disclosure of contingent liabilities and the reported amounts of revenues and expenses. The Power Plant set up by the Company started commercial production in May 2003. The statements presenting the financial position and results of the operations are available only for the period May 24, 2003 to March 31, 2004. Since no comparative statements for the earlier years are available, we believe that all aspects of our financial statements should be studied and understood in assessing our current and expected financial condition and results of operation for which the

following significant accounting policies warrant particular attention:

Revenue Recognition Revenue from sale of energy and other claims are accounted for on the basis of billing to Himachal Pradesh State Electricity Board (HPSEB) in accordance with the provisions of the PPA.

HPERC, vide its Order dated September 6, 2003, declared the Supplementary Agreement to be void and inoperative.

The payment of electrical energy is presently being made by HPSEB as per the directions of HPERC against the energy bills prepared on the basis of provisional tariff in accordance with the provision of the PPA based on the completion cost of Rs 15,500 million approved by the HPSEB and GoHP. Payments received by the Company from HPSEB based on their actual realizations from sale of power, are lower than the energy bills prepared on the basis of provisional tariff. This would result in arrears accumulation. The receivables from HPSEB on account of this are subject to necessary adjustments after the final tariff is determined by the HPERC.

Fixed Assets The building and plant & machinery acquired/constructed are stated at cost of acquisition/construction including incidental expenditure during the construction period up to the date of commercial operation of the relevant assets and freight, duties & taxes etc. Fixed assets are stated at cost of acquisition inclusive of freight, duties, taxes and incidental expenses.

Depreciation Premium on leasehold land is amortized over the period of lease. Fixed assets are depreciated as per straight-line method at the rates specified in Schedule XIV of the Companies Act, 1956.

Foreign Currency Transactions Transactions in foreign currency are recorded in the books of account at the rate of exchange prevailing on the date of transactions. All loans and deferred credits repayable in Foreign Currency and outstanding at the close of the year are expressed in Indian Currency at the rate of exchange prevailing on the date of the Balance Sheet.

Borrowing cost Borrowing cost attributable to the acquisition / construction of fixed assets is capitalized as part of the cost of the respective assets up to the date of commissioning. Other borrowings cost are expenses during the year in which they arise.

Taxes on Income Provision for current tax is made after taking into consideration benefits admissible under the provisions of the Income Tax Act, 1961. Deferred tax liability is provided pursuant to Accounting Standard AS-22. Deferred tax assets and Deferred tax liability will be calculated by applying rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date.

Amortization of Miscellaneous expenditure Miscellaneous Expenditure are amortized over a period of 3 years from COD.



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